Whiting plans to exit 2016 with 30 DUC wells, as opposed to 74
Last week, Whiting Petroleum (ticker: WLL) announced that it entered into a wellbore participation agreement that will increase the number of completions on the company’s Williston acreage.
WLL’s private partner will assume 65% of the drilling and completion costs in 44 gross Williston Basin wells to be completed this year in return for 50% working interest. The activity is expected to take place in the second half of this year, leaving Whiting’s full-year production estimates largely unchanged at 134.2 MBOEPD at its midpoint.
The agreement with a private party will help Whiting reduce its drilled uncompleted (DUC) wells in the Bakken to 30, from approximately 74, by year-end.
An analyst note from Raymond James today estimated that even looking at the current strip pricing, the returns to Whiting on the deal are favorable.
“By our calculations,” read the note, “taking the example of a Williams County Bakken well for which Whiting has a 100% working interest with an associated well cost of $6.8 million to Whiting and valuing the well on strip pricing, we estimate that the net effect of the carry (50% WI and $2.38 million well cost) essentially doubles the IRR to Whiting.”
During the company’s conference call, Whiting Chairman, President and CEO Jim Volker said the favorable terms were due to the company “[having] a premier asset base recognized by industry partners as profitable at lower oil prices.”
When asked if the company would pursue any more joint ventures, Volker said the possibility exists, but “whether or not we act on it or not will be dependent upon the terms of those deals continuing to remain … very positive.”
WLL plans to drill about 83 gross wells and complete 54 wells this year. The activity will be predominantly focused in its Polar, Tarpon and Dunn County areas, with the company targeting 4-6 wells per pad.
Whiting plans to spend approximately $500 million on its 2016 drilling program, with roughly 70% spent during the first half of the year. The program will include four rigs, two each in the Williston and Niobrara. Most of the completion activity will take place in the second half of the year, meaning most of the production gains will not be apparent until Q4’16, or early 2017.
Good liquidity, but interest coverage could be a concern
With just 40% of its $2.5 billion credit facility drawn, Whiting holds $1.5 billion in liquidity, but analysts at Raymond James were still concerned about its balance sheet covenants.
Whiting is required to maintain a ratio of consolidated cash flow to interest expense that is greater than 2.0x. “While this covenant currently stands at 3.54x, it will likely regress towards 2.2x by the end of the year,” said the note.
